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December 16, 2013

student loans and Sallie Mae's automatic debit progam

Like most students in the US, I've had to take out student loans to attend higher ed. I was appalled when my Direct Loans were suddenly sold to Sallie Mae. Anyone who has ever had to deal with Sallie Mae can probably report at least one moment of feeling like we're living in some dystopian future, where you've been reduced to some utilitarian number in the eyes of a disembodied and merciless bureaucracy; and you know you aren't ever going to win this battle. One thing that really incensed me with the whole process was that there was no warning, no letter, no message to let me know it was happening-- nada. This transfer also happened to coincide with a payment that I had made to Direct Loan and it took well over a month for that payment to show up in Sallie Mae's records. I ended up having to write a check for a second payment in the same month, but to Sallie Mae, to ensure that I was up-to-date on my payments. When my loans finally got all set up on Sallie Mae, I had to go through the entire process of linking bank accounts, making sure I was on the correct payment plans (this took several phones calls), etc..."ugghhhh" is putting it nicely.

After accepting the inevitable change, I started to look for ways to make paying these loans a little less harrowing. One way is Sallie Mae's Automatic Debit program. You may link a checking or savings account for your monthly payment to your Sallie Mae account and Sallie Mae will automatically deduct your student loan payment on a designated day. The service is free and they'll give you a 0.25% reduction on your student loan interest that were originally owned by the US Department of Education (in other words, I'm not sure they'll do this if you took out private loans). The reduction is not much, but anything helps! You can head over to these calculators to see what you might save.

I have to admit, signing up for automatic debit was a little nerve-wracking (not necessarily the process itself, but the idea of signing up for auto payments-- it felt a little like showing a thief where you keep your secret stash of money). The process does require that you download a form and send it back to them and when all is approved, they send you a letter notifying you that it's properly set up. The first few times they were going to do the automatic debit, I watched the process like a hawk, checking and rechecking that the payment had been properly posted. After a few months, I was a little less nervous and now I have to admit that I like that it's one payment I worry about a little less. It's comforting to know that as long as I have money in my checking account, my student loan payment will be paid on time.

There are a few caveats and things you should consider. Foremost is probably that you have to take into consideration whether you have a regular income so that you will always have enough in your account when they go to make the withdrawal. I'm imagining that bad things might happen if you don't have enough in your account to cover the withdrawal. Since I do finally have a pretty regular income and have overdraft protection enough to cover the student loan payment, I don't worry about this very much, but it's something anyone should consider before signing up for the program. The second hinky thing is how your payments post if your selected payment date falls on a weekend or holiday. That letter of approval from Sallie Mae provides this information, but I couldn't find it anywhere else online:

If the scheduled payment date falls on a weekend or holiday, the auto debit will fall on a the following business day reflecting your actual due date.

It's a rather innocuous little statement, but what it means is that if your payment date falls on a weekend or holiday and you happen to log into Sallie Mae during that weekend or holiday, you'll see a message that your payment is overdue. The first time this happened, I panicked (despite knowing that it should debit the next business day without penalty). Indeed, I called them the very next business day and was reassured that it would be fine. It did take nearly a week for my Sallie Mae account to reflect the payment and before that awful message would disappear, but sure enough, no negative remarks showed up on my credit history and no penalties were assessed to my loans. Still...an awful experience and I have to admit, I still dread when a payment date falls on a weekend or holiday.

The last caveat is that I've found that this process tends to discourage you from making additional payments. When I had to log on to Direct Loan to make a payment, I was likely to make a larger payment than was necessary. With this Automatic Debit, I tend to just let it be on autopilot; although I still check in regularly to make sure a payment has been made, I usually rely on seeing the debit to my checking account as evidence of this. I have hit on using UPromise to add additional payments, but that's another post.

As a final note, I have no idea why the websites for these loan services are just so bad. Direct Loan's website was appalling and to Sallie Mae's credit, I find their website slightly better...still, it's a far cry from any nice, easy-to-navigate site. On bad days, I think they do this on purpose to confuse us.